I



I. Statutes

a. Sherman Act

i. Section 1 – anti-competitive agreement

1. Criminal statute that prohibits contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations.

2. Can’t be taken literally, because almost every K will be considered a restraint on trade.

ii. Section 2 – monopolization

1. Monopolization – Illegal to be an actual monopolist

2. Attempted Monopolization – Likewise to attempt to become one

3. Conspiracy to Monopolize – Either by unilateral conduct or by combination

b. Clayton Act

i. Section 3 – conditioning of sales

1. Objectionable if it substantially lessens competition or tend to create a monopoly in any line of commerce

2. Per Se Rule

3. Two Offenses

a. Tying – can’t buy product A unless you also purchase product B

b. Exclusive Dealing – You can’t have Product A unless you only purchase from me.

ii. Section 4 – civil suits

1. Civil Suits – anyone who’s injured due to antitrust violation can sue

a. Must also have antitrust standing

2. Treble Damages

a. Statutorily Mandated Punitive damages

iii. Section 7 – Mergers

1. It need not be a complete takeover

2. Acquire a business where it would substantially lessen competition or tend to lessen competitoin

c. FTCA

i. Section 5 – unfair methods of competition

1. Creates the FTC

a. Finder of Fact – weigh evidence based ont eh subjected to the abuse of discretion standard.

d. Robinson-Patman Act – Price Discrimination

i. Not an anti-trust statute

ii. Standard has been brought into more and more conformance with the other antitrust act.

II. Introduction and Overview

a. The Law and Economics of Antitrust

i. The Sale of Mineral Water in Cournotia

1. The Why and How of this Model

a. One of three simple economic “models” that permeate the course

i. Cournotia model of collusion; Ch.1 (Price-fixing via cartelization) – Horizontal Price Fixing is per se illegal

ii. Dominant Firm Model of unilateral behavior; Ch.4 (monopolization

iii. “Principal-Agent” model of vertical relationship; Ch.5 (Vertical Restraints)

b. The Cournotia model explains, right at the outset, the economic concerns that are the underlying rationale of the antitrust laws

c. Market Spoilage Effect

i. If you increase production, you lose the price difference and that’s the market spoilage

ii. Chiselers get all the good effects of the product expansion and none of the bad ones.

ii. Some Analytic Extensions and Formalization

1. Translation into Graphical Models

2. The Dilemma of Rivalistic Behavior

iii. Assumption and Premises: Economic Modeling and Legal Reasoning

1. Assumption in Social Science

2. Economic Efficiency: The Core Premise of Antitrust

b. An Overview of Antitrust in the Courts

i. Monopolization

1. Aspen Skiing Co. v. Aspen Highlands Skiing Corp.

a. Elements of Monopolization

i. Possession of monopoly power in relevant market

ii. Willful acquisition maintenance, or use of that power by anticompetitive means or for anticompetitive or exclusionary purposes. Bad Conduct

1. either acquired the monopoly through anticompetitive conduct

2. or the monopoly was acquired legitimately but its existence was defended through anticompetitive means

b. Alleged bad conduct in this case: refusal to engage in cooperative agreement

i. Since there is a history of cooperation, the refusal to continue to participate in a joint marketing plan could amount to monopolization

ii. An important change made by the monopolist to the market, and the lack of reasonable business justification.

c. Must first define the market

i. Product market

1. substitute vacation spots?

ii. Geographic Market

1. Aspen – are there comparable slopes?

d. Colgate Doctrine – no unqualified right to refuse to deal with a competitor

i. One has the right to refuse to deal with anyone, but not if

1. the refusal to deal is a means of monopolization or an attempt to monopolize

2. Note: Refusal to Deal as Antitrust Violation

a. D now bears the affirmative burden of proving a justification for refusal to deal with a competitor.

b. A company with monopoly power has no duty to cooperate with its rivals and does not violate §2 by refusing to deal with competitors if it has a valid business reason.

3. Attempted Monopolization

a. Actual market power or if without market power – show that there is an attempt to obtain market power by engaging in bad conduct.

b. Only need a dangerous probability of getting market power.

c. Must prove specific intent on the part of the one that’s attempting to monopolize

ii. Vertical Restraints

1. Graphic Products Distributors, Inc. v. Itek Corp.

a. Vertical organization of production – where all these functions are carried out under some legal proof, and a company that owns and operates all distinguishable parts of production

b. Section 1 doesn’t apply because there are no multiple parties here.

c. If it is contractual, then a conspiracy is possible.

d. Sylvania changed the rules with respect to vertical geographic agreements (non-price vertical restraints on trade)

i. RoR applies to all territorial restrictions

ii. Determine if the benefits of the vertical restraints outweigh the competitive injury

e. Market Power Requirement

i. P must show that D has market power in the relevant market

1. Ability to raise prices significantly above the competitive level without losing all of one’s business

2. Anything that’s a proper substitute is appropriately included in the antitrust market.

f. Facts of this case:

i. Itek had an integrated system where they had their own sales people out doing direct sales. Then it developed a dual system, where they allowed distribution of its products through independent distributors, and thereafter limited the selling radius of its own sales people to be within 50 miles

ii. Itek wanted to sell more products by reaching into areas where it could not before.

g. Holding

i. The court found that there was sufficient evidence for the jury to find that intrabrand competition was an important source of competitive pressure on price, and the defendant’s system of territorial restraints, which totally foreclosed intrabrand competition, had substantially adverse effects on price competition and consumer welfare.

2. Note: Copperweld Corp. v. Independence Tube Corp.

a. If the subsidiary is wholly owned by the parent, there isn’t really any separate economic entity, foolish to think that there is.

b. S. Ct.

i. Regardless of the fact that they are independent legal entities, §1 does not apply.

ii. A parent may still be liable for conspiring with an affiliated corporation it does not completely own.

3. Note: Lawyering Errors and Antitrust Liability

iii. Conspiracy to Restrain Trade

1. Rothery Storage & Van Co. v. Atlas Van Lines

a. Alleged Restraint

i. Group boycott was per se illegal at one time.

ii. Atlas had contracted with independent moving companies to establish interstate presence, and limited the independent moving companies from contracting with other van lines to do interstate moving, if they do, they can’t use Atlas.

b. Story

i. Benign Story

1. attempting to partially integrate through K, and they had encountered the free rider problem where people are freeriding on Atlas’s advertising and national presence to sell tits own services

c. Holding

i. Atlas and its agents by eliminating competition but not restricting out put means that they must be operating more efficiently, and no evidence of market power.

ii. Price Fix is ok because it is trying to establish a national price for a national entity

iii. Horizontal Restraints are no longer per se illegal

iv. Group Boycotts are never per se illegal

d. Nexus with Previous Cases

i. Aspen Skiing

1. D offered an unbelievable procompetitive story, but this case is the opposite of Aspen Ski.

ii. Impossible to believe that Atlas is trying to eliminate competition in order ot produce the evils of monopoly, the market will punish them if the law doesn’t.

e. Horizontal v. Vertical

i. Vertical restraints are not per se illegal after Sylvania

ii. Horizontal restrains are still per se illegal.

f. Ancillary Restrictions

i. An agreement is not per se illegal if the agreement ot restrain trade is only ancillr

2. Note: Marketing Power, Monopoly Power and Filters

a. Filtering P’s Claims

i. P must present evidence that tend to exclude any unilateral behavior explanation of the evidence and also sho the alleged conspiracy makes economic sense.

b. Market Power

i. The power to control prices or exclude competition

ii. The ability to raise prices significantly above the competitive level without losing all of one’s business

iii. Posner – the power to charge a price above cost without losing so much business so fast to competitors that the price is unsustainable.

iv. Market Power arises when D

1. can profitably set prices well above costs; and

2. enjoy some protection against a rival’s entry or expansion that would erode such super competitive profits and prices.

c. Market Power v. Monopoly Power

i. 2d cir. – market power is a synonym for monopoly power

ii. 3rd cir. – monopoly power in sec. 2 is greater than market power under sec. 1

3. Per Se Rules

a. Group boycotts is not per se illegal anymore

b. Information interchange no longer per se illegal

c. Vertical Territorial Restraint – Clearly RoR

d. Horizontal Price Fixing

i. Two chinks

1. BMI and NCAA

a. NCAA – courts acknowledge it is price fixing, but used RoR analysis

2. Addyston Pipe

a. Price fix as an ancillary restraint

iv. Injury To competition Through Mergers

1. United States v. Waste Management, Inc.

a. Challenged merger under §7 of the Clayton Act

b. The court held that although a large market share resulting from the merger is prima facie evidence of illegality; ease of entry may rebut that presumption because it demonstrate that the firm will be unable to raise prices over the competitive level without new firms entering the market.

c. This isn’t perfect since there’s always some wiggle room so they do not charge perfectlycompetitive price.

2. Note: Balancing Types of Error in Antitrust

a. RoR where competitive injuries outweigh the procompetitive effects should be prohibited by the antitrust law.

b. Type I error

i. False positive, where the practice is illegal but none-the-less beneficial to society. Exposed to liability or threat of liability could deter the conduct

c. Type II error

i. False Negative, it is mistakenly failing to punish the guilty.

v. Special Requirements for Private Recovery

1. Mid-Mich. Radiology Assoc. v. Central Mich. Com’ty Hosp.

a. Two requirements as barrier to private antitrust suits – antitrust standing, and antitrust injury.

b. §4 antitrust standing is required – just because you were injured isn’t enough, must show an injury to competition.

1. injury to an interest protected by the antitrust laws and attributable to the antitrust violation – that is, antitrust injury

a. Brunswick Corp. v. Pueblo Bow-O-Mat, Inc.

2. a direct link between the antitrust violation and the antitrust injury, that is to say, standing.

3. you also have to be an “appropriate enforcer”

a. Illinois Brick v. Illinois

i. Indirect purchasers of ap rice-fixed product do not have standing to bring an antitrust suit; only direct purchasers have the requisite proximity of injury

d. We want to make sure we’re protecting competition and not competitors.

2. Note: The Art of Pigeonholing in Antitrust

e. Vertical vs. horizontal

f. Price vs. non-price

g. Ancillary vs. naked

h. Unilateral vs. concerted

i. Per se vs. rule of reason

j. Essential facility

k. These are compartments of antitrust law, by describing it as one or the other, you make a different set of rules applicable, traditionally… malleability becomes important.

III. Conspiracies in Restraint of Trade

a. The Mechanics of Price-Fixing Arrangement

i. How Price-Fixing Works: The Uranium Cartel

1. Business Background and Politico-Legal History

a. General Atomic Co. v. Exxon Nuclear Corp.

i. Facts

1. Canada initiates formation of the cartel

2. Foreign Governments and Producers Establish the cartel

3. Canadian Government implements Cartel, and compels participation

a. Gulf was compelled to enter this cartel

ii. Alleged conspiracy

1. Int’l – it is obviously a cartel

2. Domestic – American producers adopted some of the same contractual principles as the foreign cartel

a. Unilateral Explanation – if the market will sustain these higher prices, and the market has gone higher, then it is a seller’s market, of course they are gong to adopt these same terms in order to gain more profit.

2. Official Rules of the Uranium Cartel

a. Those who agreed to joint he cartel will obey the letter of the agreement if not the spirit – since they can give non-price discounts that technically do not violate the cartel agreement on price by using lower interest rates etc.

b. Homogeneity of the product made the cartel much easier to enforce.

c. Cartel adopted more rules as they saw problems arise during the course of the cooperation

i. Standard Conditions

ii. Currency

iii. Quantity Flexibility

iv. Schedule Flexibility

v. Force Majeure, Late Delivery

3. Discussion problem: McGinty’s Gasoline Cartel

a. McGinty made up this story about how he orchestrated a cartel, but his story had a lot of anomalies

i. Why would the price not only go up, but also go down?

1. cartel collapses?

2. Supply and demand fluctuates and there’s seasonal fluctuation – and that fit perfectly with the price changes.

3. LA is a terrible place to price fix since there are not natural geographic boundaries, and who would you include?

ii. The Normative Pros and Cons of Cartels (and Antitrust Enforcement)

1. Ruinous Competition: Over-Investment

a. In an industry with high sunken costs and low marginal costs, it is possible that competition to drive the price down to MC would allow the business to operate in the short run, but would destroy both competitors in the long run.

b. Courts have rejected ruinous competition as a justification for cartels

2. Self-Help Remedies in K

a. Central Manufacturers Protective Assoc. v. United States

i. An agreement to exchange information

ii. The Court held that the demand for and the receipt of such deliveries by the contractor would be a fraud on the manufacturer; and the gathering and dissemination of information which will enable sellers to prevent the perpetration of fraud upon them, which information they are free to act upon or not as they choose, cannot be held to be an unlawful restraint of trade.

3. Lower Prices Through Collusion: Odd Conditions

a. This occurs in a market where there is high levels of fluctuation in competition and some are losing money on its product depending on the competition in the market. They may decided to agree to a competitive price, and eliminate the fluctuation, and they will maintain the competitive price because of the ease of entry.

b. Now that they face risk, P should fall either by inducing new entrants or cause lowering prices

c. It is an admissible defense against damages

i. If the bidrigging means that consumers are paying lower costs, then it is likely the damages will be lowered.

4. Property Rights and Establishment of Efficient Prices

a. Madison Oil Case

i. Where they had to price fix in order to establish the right prices arguing in effect that the market did not price at efficient levels without the collusion.

ii. Markets do not function well when property right isn’t well defined.

iii. It is arguable that excess withdraw would harm society and that people who engage in horizontal restraints can engage in perfect competition.

5. Enforcement of Rules Against Price-Fixing

a. The Nirvana Fallacy

i. If we engage in strenuous enforcement, might we do more harm than good?

ii. Just because something undesirable is going on does not mean that passing a law against it will obviate the prorlbelm.

b. Classic Early Cases

i. Summary: U.S. v. Trans-Missouri Freight Ass’n

1. Court forbade price-fixing agreements and territorial divisions because §1 condemned entry trade restraints without exception.

2. The court was on its way to developing a distinction between conduct whose sole purpose was to restrain trade and behavior related to attaining legitimate business objectives.

3. Compliance with another statute does not exempt it from antitrust law.

4. Price fixing is per se illegal under §1

5. the solution to ruinous competition was not price fixing agreement.

ii. Summary: U.S. v. Addyston Pipe & Steel Co.

1. Ancillarity – requires a legitimate main purpose, to which the covenant in restraint of trade is merely ancillary

2. Mfr’s restraint was found to be nakedly anticompetitive and thus violate the Sherman Act.

3. Naked restraints in which the sole object is to eliminate competition were per se illegal; ancillary price-fixing agreements may be legal if they are reasonable.

iii. Summary: U.S. v. Trenton Potteries Co.

1. Sustained jury instruction that stated that the law is clear and that a price-fixing agreement is in itself an undue and unreasonable restraint of trade.

2. It does not make a difference that the price-fixed was reasonable, as long as there is a price-fixing agreement, and it establishes d’s illegal purpose, it is illegal.

iv. Summary: Appalachian Coals v. United States

1. The mere fact that the parties to an agreement eliminate competition between themselves is not enough to condemn it, if it isn’t enough to show injurious effect

c. Doctrinal Foundation of §1

i. Per Se Violations

1. U.S. v. Socony-Vaccum Oil Co. [Madison Oil]

a. Types of Horizontal Per Se Violations

i. Price Fixing

ii. Group Boycotts

iii. Territorial Market Allocation

b. Adopted a rigid per se rule that condemned all price-fixing arrangements.

c. Remains the foundational analysis for horizontal price-fixing cartels

i. All you need to prove is that there was a combination formed for the purpose of fixing prices and that it caused them to be fixed.

ii. FN 59 – law doesn’t care if the price is reasonable, just that the conduct is done.

1. if you engage in behavior that affect or try to affect price, that’s enough to establish a sec. 1 violation.

d. The agreement did not agree on price, instead they affected prices by curtailing competition to raise prices.

2. Fashion Originators’ Guild of America v. FTC

a. S. Ct. found enforcement of IP rights through an organization per se illegal as it is considered group boycott.

b. Sample case of group boycott and enforced with the threat of refusal to deal with people who do not comply with the regulations promulgated by the FOGA.

3. United States v. Topco Associates, Inc.

a. Topco Associates restrained certain sale of generic brand products for small grocery chains by territory, however it was held to be per se illegal.

b. Even though this was a competitive agreement, it was still an irrebuttable presumption

i. Rejected the evidence of the lack of market power, that the arrangement did not reduce competition and that the restriction were necessary for the joint venture to succeed.

c. FN10 tried to justify this

ii. Rule of Reason

1. Board of Trade of City of Chicago v. United States

a. Rule of Reason Test

i. Criterion – restraint in question has to be one that merely regulates and thereby promote competition. Must provide a rationale that makes competition works better on the procompetitive side

b. Courts will consider

i. The facts peculiar to the business to which restraint is applied

ii. Condition before and after the restraint

iii. The nature of the restraint and ts effects.

2. Note: The Rule of Reason and Definition of Relevant Markets

a. Often case-dispositive

b. Modern Methodology – what would need to be controlled in order to be able to profitably raise prices for a non-transitory period.

3. Nat’l Soc’y of Prof’l Engineers v. U.S.

a. Court applied the RoR analysis partially because it is the restraint of a learned profession.

b. What counts in the RoR balancing test

i. The reason you give for the restraint must be the reasons that make the market work better. Like unless we control the freerider behavior, everything’s going to go up in smokes.

ii. We don’t want the market to work here because it will harm consumers in other ways than price.

iii. The court found the ban on competitive bidding to suppress and destroy competition and had an indirect effect on prices.

d. Doctrinal Reformations

i. Loosening of Per Se Rules

1. Price-Fixing

a. Broadcast Music v. Columbia Broadcasting System

i. Blanket licenses are not a naked restraints of trade with no beneficial purpose because it is a new product.

ii. This is only an ancillary restraint, it is necessary in order to make available a different product (necessity Rule).

b. NCAA v. Board of Regents of the University of Oklahoma

i. Maricopa and Catalano said that they are still Per Se, even though the court used RoR analysis for this.

ii. BMI is not just an oddity like Applacian Coal – according to this case.

iii. Courts are willing to grant some exceptions to the strict per se rule for horizontal constraints.

iv. The Rule of Reason analysis is now applicable under the quick-look test:

1. look at the conduct – whether it is facially the type that has the potential of being procompetitive without weighing the specifics of the restraints at issue.

2. mostly available where the horizontal restraint on competition are essential if the product is to be available at all.

3. Quantity-Increase Test: Are they trying to increase or decrease the quantity of production.

v. NCAA restraint was naked because it restricted both price and ouput.

c. Jury Instructions: Price Fixing

i. Instruction #1

ii. Instruction #2

2. Concerted Refusals to Deal

a. Northwest Wholesale Stationers v. Pacific Stationary

i. Market Power Filter

1. In order for a horizontal restraint to be treated as per se, it is a necessary condition that P show that D has market power or exclusive access to an element essential to affect competition. If P can’t show that, then it is RoR.

b. Summary: FTC v. Indiana Federation of Dentists

i. Since Market definition and market powers are merely indirect tools for evaluating whether competitive injury is plausible, direct proof of adverse competitive effecient obviates the need for these inquiries

1. If P can show direct proof of competitive injury, then you can bypass the necessity of showing market power.

c. Note: Horizontal Versus Vertical Boycotts

i. The per se rule is also inapplicable when we are talking about vertical concerted refusal to deal

d. Jury Instructions: Horizontal Boycotts

ii. Reaffirmation of Per Se Rules

1. Summary: Ariz. v. Maricopa County Medical Society

a. Per Se rule was used in striking down a horizontal agreement to set maximum prices for doctors who wanted to join the organization to set max prices.

2. Summary: FTC v. Sup. Ct. Trial Lawyers Ass’n

a. Market Power Filter for Price Fixing is rejected. Per se is still the rule governing agreements that are inseparably naked anticompetitive.

b. Case involved more than a boycott, also involved price fixing.

c. Modern Approach to boycotts

i. An agreement by direct rivals to withhold their services until the price for such services is raised is a naked restraint on output and is condemned summarily

ii. Concerted refusals to deal that pose remotely plausible efficiency rationales are evaluated with a truncated RoR that begins with a preliminary assessment of the conduct’s purpose and effects

iii. Suits challenging membership policies of efficiency-enhancing collaborations require a fuller reasonableness inquiry, includinga determination of the defendant’s market power.

3. Summary: Palmer v. BRG of Georgia, Inc.

a. Horizontal Territorial Allocation

i. Revenue-sharing formula, plus the immediate price increase, indicated that the agreement was formed for the purpose and with the effect of raising the bar review course’s prices in violation of the Sherman Act.

ii. Agreements between competitors to allocate territories to minimize competition are illegal regardless of whether the parties split a market within which they both do business or merely reserve one market for one and another for the other.

e. An Emerging Non-Dichotomous Presumption-Based Analysis (?)

i. The “Quick Look” as a Presumption-determining Tool

1. Introduction

a. Quick Look

i. A rule-determining method – whereby conduct that falls within the traditional per se treatment may be able to escape into the RoR treatment.

1. BMI and NCAA – where it offers the D a possibility to rebut the presumption that its conduct is per se illegal.

ii. Truncated RoR analysis – whereby conduct that falls within the domain of traditional rule of reason treatment may be condemned after merely an abbreviated scrutiny.

1. Offer P the possibility to avoid the full burden of proof normally required under RoR analysis.

2. California Dental Association v. FTC

a. Association prohibited price discounting advertisement without regard whether they were fraudulent or otherwise.

b. The court found that the advertising restrictions were inherently suspect had no plausible efficiency justification. There is a rebuttable assumption

c. Substantial Evidence Standard

d. Must offer evidence from the ame industry in order for truncated ROR to apply.

ii. Ancillarity as a Pigeonholing Principle

1. Polk Bros. v. Forest City Enterprises

a. RoR analysis to uphold an agreement by two retailers to restrict the products that each could sell in stores that would be located within a new building which the firms had agreed that Polk Bros. Would build

b. The product endeavor would not have occurred had the market division not occurred.

c. A restraint is ancillary when it may contribute to the success of a cooperative venture that promises greater productivity and output.

iii. FTC Standards for Evaluating Horizontal Agreements

1. Polygram Holding, Inc. v. FTC.

a. Quick-Look isn’t dichotomous, instead it is a continuum.

b. based on economic learning, and experience of the market, it is obvious that a restraint of trade likely impairs competition, then the restraint is presumed unlawful and, in order to avoid liability, the defendant must either identify some reason the restraint is unlikely to Harm consumers or identify some competitive benefit.

c. Agreement is presumptive a violation if

i. Suspiciously like price-fixing agreement

ii. Enough like it that it raises the presumption they are up to no good, then the burden shifts to D.

d. Free-rider justification has been rejected.

IV. Further Issues Concerning Collusion

a. Applicability of the Sherman Act

i. Commercial vs. Non-Commercial Activities

1. D.E.L.T.A. Rescue v. the Humane Society of the U.S.

a. Non-commercial organizations do not have the fundamental commercial purpose that does things that affect commerce.

b. Mere charitable form of organization does not give them immunity, must look at whether they in fact engage in commercial activity.

i. When they perform acts that are antithesis of commercial activities, then they are immune, because any effect on commerce is only incidental.

2. United States v. Brown University

a. D. Ct. applied the quick look test, however, the ct. of appeals insisted that a full ROR should’ve been engaged in and considered more carefully the pro-competitive factors, even justifications that are non-economic

ii. Other Applicability Issues

1. Most exemptions to the antitrust law require affirmative law passed by Congress

a. Labor Unions

b. Insurance

c. Professional Sports

b. Proving the Existence of a Conspiracy

i. The Limits of Circumstantial Evidence

1. Matsushita Elec. Ind. Co. v. Zenith Radio Corp.

a. This case and Monsanto together effect very important changes in the law in raising the hurdles considerably for plaintiffs to get to a jury in antitrust case.

b. Standing Rule

i. If competitors are charging higher prices, no injury to you because you can charge a competitive price and give you an opportunity to make profit. No anti-competitive injury.

c. Must make economic sense rule

i. Under the predatory pricing theory, is the potential of recoupment likely? Are there barriers of entry?

ii. Must show: they are not only selling below cost now, but also that somewhere down the line, the defendant will be able to recoup the investment period, and if they can’t, the case is out of here.

d. Two Filters:

i. Monsanto – evidence must tend to exclude unilateral explanation of conduct

ii. Matsushita – the alleged conspiracy must make economic sense.

e. Anticompetitive injury is required

f. Predatory pricing – must make economic sense

g. Evidentiary standard – must present evidence that tends to exclude the possibility that the alleged conspirators acted independently.

h. Monsanto

i. Must be evidence that tend to exclude the possibility of independent action by the parties.

2. Reynolds Chevrolet Discussion Problem

a. Expert witness that can bring in good evidence as a matter of fact to show a scientific explanation of why there is a conspiracy, the rule is satisfied.

b. There was an explanation for both sides, and although one was cutting prices, that’s the way competition go, and we don’t want people to be filing suits every time there was a price cut.

c. Limits of Circumstantial Evidence

i. Standard for Summary Judgment

1. it is the same for antitrust cases as it is for any other case.

ii. Monsanto v. Spray Rite Service Corp.

1. the case can no longer get to the jury so long as the D steps up and say that there’s a plausible unilateral explanation for this conduct, if he’s able to proffer such an explanation, the burden shifts, and P has to show evidence that it is not independent conduct.

ii. The Extent of Conspiracies

1. Single Scheme vs. Multiple-conspiracy characterizations

a. United States v. Beachner Constructions Co.

i. Limited geographic area for asphalt companies,

ii. And instead of having each K being a conspiracy, there is a single, continuing bid-rigging conspiracy.

iii. The pertinent inquiry is whether the record is sufficient to establisht hat all conspirators had a single, common and continuing objective.

2. Why the Number of Conspirators Matter in Civil Cases

a. The Law

i. An antitrust conspiracy, from a civil perspective, is a tort with joint and several liability among all the defendants.

ii. Contribution among tortfeasors is specifically barred by a special antitrust rule arising from Texas Industries

1. Contribution Rule – P can sue anyone of them and recover the whole damage

2. Ordinary Tort – after judgment has been entered, can turn around and sue joint tortfeasors.

3. Antitrust Rule – can’t do that

iii. Set-Offs

1. to the extent settlement has taken place, that gets deducted from the final judgment.

2. (damages-settlement already paid)/n (non-settling defendants) – weigh that by the probability that the plaintiff will never be able to get this judgment by P

3. P[(d-2)/n]

4. P varies: 50% - moderate; 10% - weak

iv. Exhibit 8

1. A P who is successful at negotiating would be able to collect more money than the case is worth.

2. Defendants would rush to settle early, so they don’t get stuck with the big amount in the end.

v. Exhibit 9

1. the whipsaw effect is less, advantage is less the greater the merit of the case.

b. Discussion Problem: Sunshina Highway Bidrigging Cases

i. Non-Release Clause

1. necessary in some states which require you to say that you do not relieve all other joint tortfeasors

ii. General Release

1. All the settlement K contain the same clause:

a. “any and all actions, claims and demands – arising from or related to any violation or alleged violation of any federal or state antitrust law”

b. Make it unclear of the allocation

2. Incentive for P to try to bring as many claims, and get those settled before trial and avoid set-off on the good cases.

iii. Common Purpose and Other Requirements

1. Complaint: Virginia Vermiculite Ltd. v. W.R. Grace & Co.

a. Common Purpose and K or Combination

i. Common Purpose

1. it isn’t necessary that HGSI would’ve wanted to share in Grace’s anticompetitive motivation in entering into the restraint, but if they went along with this transaction knowing that there would be anticompetitive effects ( that’s enough for common purpose

2. Sec. 1 requires proof that the conspirators had a common purpose.

ii. K

1. you can engage in a K which is a means of effecting an anticompetitive scheme.

2. Leverage – the agreement has to in someway leverage economic power, create more power than there was in the first place

3. If there is no K for purposes of sec. 1, and no other reason, then it is out.

c. Conspiracy to Monopolize

i. Virginia Vermiculite Ltd. v. W.R. Grace & Co.

1. Elements of Conspiracy to Monopolize

a. Concerted Action;

b. Specific intent to achieve an unlawful monopoly;

i. No need to show this under §1

c. Commission of an overt act in furtherance of the conspiracy; and

d. Antitrust injury

2. Market Proof

a. Yes

i. 5th and 11th

b. No

i. 2nd, 8th, 10th

3. Factual Impossibility v. Intrinsic Impossibility

a. Factual impossibility is not a defense for conspiracy

d. Legally and Economically Ambiguous Practices

i. Agreements to exchange information

1. classic cases on information exchange

a. Preliminary Questions:

i. It is common in the competitive process for competitors to seek out others’ prices. The dissemination of price information is good for consumers, enhance price competition and produce lower prices.

ii. Two settings where information exchanges have sec.1 implications

1. where data is disseminated through the assistance of a trade association

2. where firms obtain or provide information by contacting competitors directly.

iii. Be sensitive to whether the exchange helps perfect the market or creates efficiencies, or whether it facilitates cartelization and lessens competition.

b. Summary: Amer. Column & Lumber v. United States

i. Violated Section 1because the information exchange was used to suppress competition by restricting production – genuine competitors don’t report the minutest details to their rivals.

c. Summary: Maple Flooring Mfrs. Ass’n v. United States

i. Competitors who meet to discuss past transactions, current prices and shipping rates do not violate sec. 1

d. United States v. Container Corp. of America

i. This exchange of information is virtually per se illegal.

ii. Three possible readings of the opinion

1. information exchange involving price charged currently is too specific; per se illegal

2. information exchange could be per se illegal, depending on market structure, but otherwise were to be analyzed under the rule of reason

3. Information exchange were always to be analyzed under RoR

e. Summary: United States v. United Gypsum

i. Exchange of information do not constitute a per se violation of the Sherman Act.

ii. Factors to be evaluated

1. exchange of current price information;

2. whether it is reasonable to think that this is a facilitating device to enforce a cartel or whether this is a procompetitive information exchange.

iii. Intent must be proven in criminal cases

iv. The mere exchange of price information without intent to fix prices is not criminal price-fixing per se and must be tested under the RoR.

2. Recent information-exchange case

a. The Five Smiths, Inc. v. N.F.L. Players Ass’n

i. Alleged Offenses

1. Agreement to price fix

a. Insufficient factual predicate to establish this count

b. Some of the facts alleged were consistent with unilateral behavior.

2. Agreement to Exchange information

a. Only agreement that P could establish to the court’s satisfaction.

ii. Court rejects that an agreement to exchange information alone could be per se illegal. Need to have agreement to restrain price.

iii. Made no economic sense under Matsushita.

iv. RoR analysis

1. lack of injury to competition

2. merit deficiencies

3. too many players

4. product is not fungible

5. salary is through individual negotiation

6. demand is not inelastic.

b. In re Petroleum Products Antitrust Litigation

i. Tacit collusion is not collusion for purposes of §1

1. people will not compete as competitively if there are only 2 competitors than if there are multiple competitors

ii. Signaling

1. information exchange in an oligopolistic market:

a. enhancing oligopolistic interdependence

b. Signaling could be pursuant to something else.

c. No deterrent, no pro-competitive reason for this.

d. They wanted to raise the prices uniformly, so all can engage in profit-seeking.

2. Although signaling is compatible with unilateral self-interest, still possible to permit an inference of conspiracy

iii. Exchanging price + lack of business justification = possible per se.

ii. Oligopolistic Interaction and Facilitating Devices

1. Conscious Parallelism and Tacit Agreements

a. City of Tuscaloosa v. Harcros Chemicals, Inc.

i. Dismissiability vs. sufficiency at summary judgment

1. limits on implying conspiracies

a. no direct proof of conspiracy

b. evidence that tends to exclude defendant’s unilateral

ii. Expert Testimony

1. important to only let the expert testify within his field of expertise.

iii. Circuits Plus Factor or tend to exclude test

1. Is this unilateral behavior or collusion?

2. courts typically require Plaintiffs who rely on parallel conduct to introduce add’l factors.

2. Facilitating Devices

a. Facilitating Devices to strengthen Anticompetitive Agreements

i. Facilitating devices are commercial practices or institutions that a group of conspirators may employ in order to make it easier to attain or stabilize an anticompetitive arrangement of some type. Info exchange is a classic example of a facilitating device.

ii. Note: The Ambiguous Economics of Basing-Points and MFN Clauses

1. Basing Point Pricing

a. In order to prevent chiseling from a cartel (such as cutting freight prices), they would have a basing point of shipment from one location, no matter where the stuff is being shipped from.

2. MFN clauses – adoption of certain practice unilaterally that may cause anticompetitive behavior

a. It is a clause where you will provide the K price or the current price if the current price is lower than K price.

b. Facilitating Devices in Oligopolistic Settings

i. Intro:

1. Deliberate heightening of oligopoly pricing is done through agreement and thus satisfies the requirement for a §1 restraint.

ii. Catalano, Inc. v. Target Sales, Inc.

1. Restricted on the giving of free stuff, but not on the price itself.

2. Price restraint and non-price restraints are the same, what can be done with a non-price restraint can be done with a price restraint, so non-price restraints that’s anticompetitive on tis face and was illegal per se.

3. Bad rule – anything that’s part of price is restraint will be treated as per se illegal

e. Horizontal vs. Vertical Agreements

i. Toys “R” Us, Inc. v. FTC

1. Constraining future conduct which would actually be illegal under the Colgate doctrine.

V. Monopolization

a. Monopoly Power

i. Defining Offenses

1. Classic Jurisprudence

a. United States v. Aluminum Co. of America (Alcoa)

i. Market share is the crucial measure of power

ii. Secondary-source ingots restrict monopoly power, however it is not included in the market definition

iii. Foreign sources will influence domestic pricing.

iv. The court found that it is sufficient to establish a violation of sec. 2 by showing that a firm having monopoly power purposefully and intentionally acquired, maintained, or exercised that power

v. Bad Conduct Analysis

1. Rejected the preemption argument.

vi. Found to have illegally monopolized the production of aluminum ingot.

2. Economics: The Dominant Firm Model

a. Monopoly doesn’t necessarily require as single-seller, you might still be a monopolist due to the legal definition. A firm may have the power to control price without being the only one in the market.

b. DF is presumed to have the ability to produce product more cheaply than competitors. DF can set the price as long as the fringe firms meet a certain amount of the supply and demand.

c. Predation is tempting because it is tempting to get rid of them in order to be able to raise price.

d. Chiselers can be labeled as the competitive fringe.

e. MC as production constraint/determinant

i. MC Curves – tells you the incremental revenue you would be able to get selling each add’l unit of production. As you sell more Q, each add’l units adds less and less revenue

1. tells you the incremental cost of each add’l unit

ii. Determination of profit-maximizing output – produce where MC meets MR.

iii. In a competitive firm, MC curve is supply curve.

f. Exhibit 10 – Dominant Firm Model

i. Column 1 and 2 – consumer’s preference – market demand curve

ii. Col. 3-4 – cost conditions of firms that are in the industry or capable of being in the industry and they are different

1. Production by Fringe Firms at different prices

iii. Col. 8-13

1. economic calculus of the dominant firm

g. Exhibit 11 – Deriving Fringe Supply Curve

i. Deconstruction of Supply Curves from Fringe Firms’ Marginal Cost Schedules

1. F1 – there is a minimum entry price of 6-7 dollars, prices below that, you can’t see them at all, at prices above that, they can begin to produce – entry price for one/group of firm

a. What would they produce at the price of $44.10

i. Where MC meets MR for F1

2. F2 – at same $44.10 will produce more, the intersection point of c

3. F3 - will produce to b

4. d – competitive fringe supply – just add the curve together.

5. if we did it at all price and we would get the competitive fringe supply curve

6. D = Saudi Arabia

h. Exhibit 12: DF, Diagrammatic Model

i. Step by step reconstruction of the residual demand curve

1. where the fringe supply curve and market demand, and above that intersection, D will not sell it at all. At that price, fringe will be able to supply all the demand in that market

2. not true at lower prices because the ability of the fringe to produce profitably is limited

3. The Fringe Supply curve can’t be flat – presumption – so that when the price changes, the fringe can produce more but not too much more

4. At lower price, they’re only willing to produce so much, but the consumers demand more, so the dominant firm is able to fill the gap.

5. Residual demand curve – residual demand the dominant firm is able to fill assuming the fringe goes nuts

a. The amount the dominant firm would be able to sell potentially if the fringe firms are chiseling as much as they can possibly to

6. Residual MR

a. In order to get true MR, you have to subtract the current price from the market spoilage

b. The change of revenue as you produce more

7. MC of DF ( where it meets the Residual MR ( profit maximizing price for the DF

ii. Not a monopolist, but calibrating output decisions to maximize its profits

1. at the Dominant Firm Price, DF produces e(f

2. b(c – how much fringe produces

i. Result in the Market: effects on price, output, market share, etc.

i. Competitive Prices and DF

1. If we want to find the competitive supply, we add supply to the supply curve, at a particular price

2. If we broke DF up, and each is enough is able to ignore market spoilage effect, market result would be where the market demand curve meets competitive supply, where it is much cheaper

3. The existence of the dominant firm has significant effect on price and quantity.

ii. Fringe Firm’s costs greatly exceeds DF’s cost

1. Fringe is producing their maximum, but the DF is producing at a much lower cost

2. these market characteristics produce wasteful methods of production

iii. Value of add’l output to consumers greatly exceeds MC of production

1. what’ the value of the last unit of production to consumers?

2. how much would it cost for DF to produce more?

a. Much less than how much it would be for Fringes to produce.

b. Add 26 dollars worth of value, and only 8 dollars – difference –

3. Not only is the oil being produced inefficiently, but not enough of it is produced if you do the cost-benefit analysis at the margin.

4. Non-competitive markets tend to produce those types of waste. NQ6-7

iv. It doesn’t always work, not all DF is able to raise prices like this – what drives this model – competitive fringe only has limited amount to expand production as price increases

ii. Source of the Monopoly Power: Relevant Markets

1. Summary: United States v. Grinnell Corp.

a. Demand Substitutability

i. Customers may turn to them if there is a slight increase in the price of the main product

ii. Commodities that are reasonably interchangeable make up that part of trade or commerce with sec. 2 protection against monopoly power.

iii. Engineering-oriented replacement parts fallacy

1. anything they can turn to if the prices go up – those are substitutes and not just ones that are technological substitutes

iv. Nickels and Dimes Fallacy

1. some of these things are better than others, but it doesn’t mean the inferior product isn’t an economic substitute.

b. Submarkets Argument Fallacy

i. It is possible that for a small segment of the people there is no substitute, however, it is possible for those people to get it from others, and therefore it is indistinguishable between the market and the sub-market.

ii. If one can distinguish those with no substitute, one can price discriminate.

iii. Except under extreme circumstances, the mere existence of some sub-market that has a greater demand, in principle may be exploitable, but doesn’t mean that they are exploitable, they are protected by the existence of other folks.

2. Blue Cross & Blue Shield of Wisc. v. Marshfield Clinic

a. Posner found that no reasonable jury would’ve found that HMO is its own market.

b. Supply Substitutability

i. Even if two products are completely different than the stand-point, a reaction on the supply side of the market can thwart the attempt to raise prices.

ii. If the price of HMOs rise, they would switch to PPOs, or other services offered.

3. Note: Price behavior of demand and supply substitutes

a. You can make an inference about substitutability from price behavior

4. American Key Corp. v. Cole Nat’l Corp

a. P’s case is a classic abuse of the antitrust law.

b. Geographic market consists of the area from which the sellers of the relevant product derived their customers, and the area within which purchasers of the product can practically turn for such product or service

c. The relevant market is the area of effective competitors generally are willing to compete for the consumer potential, and not the market area of a single company.

b. Exclusionary Conduct

i. Exhibit 15: Cost-Benefit Test for Exclusionary Purpose

1. Ordinary Benefits – benefits you get in a competitive market. No one should be able to get these benefits after taking

2. Exclusionary return – can be gotten in addition to the ordinary benefits.

3. A - Ordinary return plus a little bit of exclusionary return

a. As long as the exclusionary return is necessary to make the product available, and it is unavoidable, may have to have the bitter with the better.

4. B - Little ordinary return (below cost) and a lot of exclusionary return

a. The ordinary benefits are not enough to cover the costs, but the company is still doing this, it must be that there are some other benefit that meet the cost. Even though this doesn’t make sense, it is possible that they are trying to exclude competition in a secondary market.

5. C – some legitimate return, and some ambiguous return

a. The legitimate return that’s in the ball park of cost, and there’s another return that’s ambiguous – factually difficult to understand and classify

ii. Exclusionary Contracts

1. United States v. United Shoe Machinery Corp.

a. There is no question that the defendant had a monopoly through legitimate means through competition, but the issue is whether it is maintaining its monopoly through exclusionary conduct

b. The court found that the conduct was exclusionary and enhanced economic position

i. Lease-only policy did not allow a second-hand market to exist

ii. The full-capacity clause in the lease restricted the customer’s ability to use a competitor’s equipment;

iii. The price conditions made it cheaper to renew with defendant than to acquire a competitor’s machine

iv. It provided for free service which deterred customers from switching

c. Customers were happy due to the price breaks, etc. however the competition has been hindered.

d. Competitors used some of the same processes because it was economically efficient, so why is it bad when it is done by a monopolist?

i. Certain kind of business practices that are at least potentially anticompetitive when used by big firms are not so by smaller rivals due to the lack of market power.

e. It makes otherwise acceptable conduct illegal when the firm has significant market power.

iii. Attempted Monopolization

1. Abcor Corp. v. Am. International, Inc.

a. Elements of Attempted Monopolization

i. Specific Intent to Monopolize

1. an essential element in civil and criminal litigation

ii. Bad Conduct

1. not all bad conduct is bad conduct in the antitrust sense.

iii. Dangerous probability of success

1. applicable to those who have tried and not succeeded.

2. Note: The Practical Relevance of Specific Intent

a. tend to be inferred from the bad conduct and dangerous probability of success

iv. Predatory Conduct

1. Predatory Pricing

a. A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc.

i. Inferring Predation from below-cost pricing

1. Areeda-Turner Test

a. If marginal cost of a sale exceeds its marginal revenue, what return causes the company to regard this as rational business behavior?

i. You get some exclusionary return

ii. Presumption of engaging in bad conduct.

iii. Raises the presumption that what you are getting covering the gap may be something bad.

2. Measuring MC and MR

a. MC – difficult to figure out – so use of AVC

b. AVC – take all of your volume of production and uses that to divide the variable cost of production, leaves out fixed cost of production

3. Recoupment

a. Some courts will not look at intent and others will not.

b. If recoupment is impossible, there’s no reason to punish bad intent.

i. Because the conduct lowered prices and it was not bad for consumers.

4. intent evidence leads to a deterrence of hard procompetitive behavior.

b. Note: Providing Predatory pricing

c. Brooke Group Ltd. v. Brown & Williamson Tobacco

i. Essence of the claim between Clayton Act and RPA are the same.

ii. Two-Prong Predation Test

1. Below-Cost Pricing

a. the plaintiff must prove that the prices complained of are below an appropriate measure of its rival’s costs.

i. Declined to specify what measure of cost would be the threshold.

2. Possibility of Recoupment

a. A demonstration that the competitor had a reasonable prospect, or, under §2 of the Sherman Act, a dangerous probability of recouping its investment at below-cost prices.

2. Theories of Predatory Behavior

a. Note: Strategic Theories of Price and Non-Price Predation

i. Precommitment Strategies

1. where you spend a lot of money to make your production efficient so that if anyone decides to come in to compete with you, you can go down to MC which is lower than their MC, and kill them in competition

ii. Raising Rivals’ Costs

iii. Predatory Innovation

1. inventing new products in order to keep people out

iv. Predatory Resource Acquisition

v. Price Squeeze

1. Town of Concord v. Boston Edison Co.

a. Elements of Price Squeeze

i. Vertically integrated monopolist manufacturer

ii. Competitors who sell only at one level, and so must buy from the monopolist

iii. Monopolist can simultaneously

1. raise the price at which it sells to competitors and

2. lower the price at which it sells at the second level in competition with the buyers.

b. The competitors are squeezed out of the market because the cost of operation has gone up but the price of the product has gone down.

c. Price squeeze can’t work unless the vertically integrated firm is a monopolist.

d. One Monopoly Profit Theorem

1. If you can get your hand on the supply line and control at any point in the process, you can extract all of the monopoly profit, as long as down stream market is competitive. normally,

2. if you have a monopoly anywhere in the chain of production, you can extract all of the monopoly profit – no motivation to try and monopolize other parts of production

a. under certain circumstances it may not be true

vi. Essential Facilities

1. Florida Fuels, Inc. v. Krueder Oil Co.

a. Essential Facilities theory is the exception to the general rule that there is no duty to help one’s competitors.

b. Terminal Railroad Ass’n

i. Essential facility is a railway bridge, and it’s the S. Ct. case that gave rise to the development by the lower court of essential facility doctrine

ii. The owner of the only rail yard in St. Louis could not deny access to the rail yard to competing railroads who were willing to pay to pay market rates for access.

c. MCI test for essential facilities (7th Cir.)

i. 4 Prong standard

1. Control of the essential facility by a monopolist

2. competitor’s inability, practically or reasonably, to duplicate the essential facility

a. does not need to be indispensable, but must be economically unfeasible to create and present severe handicap on market entry

b. evidentiary burden to show that the access to the essential facility is unreasonable, etc.

3. the denial of the use of the facility to a competitor

a. an offer to deal at a point higher than A’s advantage value is not a defense

4. Feasibility of providing the facility

ii. Business Justification

iii. History of Dealing

2. Verizon Communications Inc. v. Trinko

a. It isn’t that there is a refusal to deal, instead, there is a drag of the feet that it takes them so long to do it.

b. The Telecommunications Act of 1996 is not an antitrust shield.

c. Monopoly power in this case is not necessarily problematic since it was a reward, and no bad conduct

d. Forced sharing is usually undesirable.

e. Aspen Skiing Exception is inapplicable here.

f. Essential facility claims should be denied where a state or federal agency has effective power to compel sharing and to regulate its scope and terms.

g. Can’t do what the court thinks is the best for competition

c. Noncollusive, Nonmonpolizing, Noncompetitive Conduct

i. E.I. Du Pont de Nemours & Co v. FTC

1. Accusation of simultaneous adoption by the two leading firms of the industry of certain policies: basing-point pricing, advance notice to competitors of price discrimination and use of most favored nation clauses. FTC claimed that these practices decreased price competition.

2. Tacit collusion challenge under §5

3. 2nd cir. said that there were no plus factors to make it go under the Sherman Act. Evidence of strong non-price competition. No evidence of harm to competition.

4. Liability under §5 for unfair practices requires, at a minimum, a showing of oppressiveness such as (1) evidence of anticompetitive intent or purpose on the part of the producer charged, or (2) the absence of an independent legitimate business reason for its conduct.

5. Market Spoilage Effect (MSE)

a. Only affected the sale you would’ve made in the current year without MFNC, but with the MFNC, the MSE is exacerbated as it is retroactive.

d. Review Exercises

i. The §2 Portions of the Virginia Vermiculite Case

1. the market was narrowly construed to only Louisa County.

2. didn’t want to mention duty to deal under essential facilities due to all the hurdles one need to jump through to do that.

ii. Sample Jury Instructions: Monopolization

1. Monopoly Power Instructions

a. P must prove by preponderance of the evidence that the defendant had monopoly power in the relevant market.

i. The power to control prices is the power to establish prices above competitive levels.

2. Relevant Market Instruction

a. Product market

i. May be appropriate to take into account of mfr. Capacity of makes or products that are not reasonable substitutes from the buyers’ point of view.

b. Geographic market

iii. The Microsoft Litigation: Monopolization

1. Essay: U.S. v. Microsoft

a. Original Complaint by DOJ

i. 4 violations under the Sherman Act

1. Maintenance of Monopoly - §2

2. Unlawful attempted monopolization of the browser market - §2

3. Unlawful exclusive dealing arrangement - §1

4. Unlawful Tying of IE to Windows 95 and 98

b. DOJ’s Theory

i. Legitimate monopoly through competition.

ii. Barrier of entry

1. applications – vicious cycle

2. network effects

iii. Middleware threat to windows

1. middleware had the potential to threaten the high barrier to entry due to applications

iv. Embrace, extend, extinguish strategy

1. try to get rid of netscape by giving it away for free

2. extended standard HTML to make some only work with IE

3. Polluted JAVA

4. Embrace the new technology, extend it to make it Microsoft specific and then extinguish it from the market.

v. Although each act had a colorable defense, when we look at it as a whole – one purpose – to undercut the middleware market.

c. Trial Court’s Conclusion of Law

i. Existence of monopoly power

ii. Maintenance of power by anticompetitive means

1. exclusionary benefit required test – conduct that would not be considered profit maximizing except for the expectation that (1) actual rivals will be driven out of the market or the entry of potential rivals blocked and (2) rivals will be chastened; basically there are exclusionary returns on top of the ordinary returns.

iii. Attempted monopolization of the browser market.

VI. Vertical Restraints

a. Introduction

i. Intro

1. If you re perfectly vertically integrated, even if the orgs. Are different legal entities, one’s shielded from §1 liability. But contracting out some of those operations will expose you those liabilities.

ii. Example: Mighty Manufacturing’s Distribution Contract

1. It is a K for vertical price fixing, and that’s per se illegal.

2. Trying to solve a free-rider problem.

iii. Economics of Contracting Out Gains and Problems

1. Potential Efficiencies of Vertical Arrangements: Economic Formalization

a. Agent/Distributor with Lower Costs

i. They can do everything you can but at a lower cost and therefore increase quantity sold even though the price is now lower

b. Agent/Distributor with higher revenues

i. If the agent can do it better, then better performance t the same cost will increase sales and increase revenue.

2. Self-serving Agents and Vertical Restraints

a. The principal-agent problem

i. The agents will do what’s the best for themselves and not what’s the best for the principal.

b. Free-riding

i. When agents can’t compete on price, they compete on service and that’s good for the principal.

c. Cream-Skimming

i. Sales people who don’t want to mine the market for more deeply, and just sell it to people who don’t need to be sold to.

b. Competitive Threats vs. Competitive Opportunities

i. Anticompetitive Concerns

1. What are the concerns?

a. It can be efficient and generate expansion of sales and it creates a win-win situation

b. However:

i. Orchestration theory among retailers

1. Orchestrate price fixing arrangement among retailers.

ii. Enforcement of Cartel/oligopoly

1. Having price uniformity but not allow retailers to engage in price-cutting

2. Dr. Miles Medical Co. v. John D. Park & Sons

a. Manufacturers who sell goods to wholesalers may not restrict their resale by constraining the buyer’s pricing decision. This is known as Resale Price Maintenance, and continues to be with some exceptions per se illegal under §1

3. Example: U-Haul Dealership K

a. a Price-Fixing Agreement

b. U-haul owned the trucks, so they can set the price at whatever they want.

c. If it’s not an agency relationship, then there is a price-fixing problem.

4. Day v. Taylor

a. True-agency relationship bears the risk of ownership

b. They evaluate not just what the K calls the relationship, but the substance of the relationship, if it is not an agency relationship, one would then worry about the price-fixing.

5. Note: Vertical Ks v. Unilateral Action

a. The Colgate Doctrine

i. So long as D’s behavior is unilateral, D can refuse to deal with anyone, and can announce a policy for that.

ii. Allow manufacturers to suggest a retail price, and then refuse to deal with wholesalers who did not sell at the suggested price.

b. However, there’s a problem with offer and acceptance if one says that I will agree to sell at this price if you reship items to me.

c. Distinguishing Park, Davis & Co.

i. PD held discussions with several retailers using cooperation of one to induce the others. No termination if price is not followed

ii. Ct held that the agreement violated the Sherman Act.

iii. Sometimes it can be a K for commercial law but not for antitrust law.

6. Summary: Albrecht v. Herald Co.

a. Maximum price fixing agreement was per se illegal under §1.

b. The practical effect of this decision is for manufacturers to integrate downstream so that

c. Overruled by State Oil v. Khan.

d. Consumers are not injured, we don’t care if retailers are injured because we only care about injury to competition.

7. Summary: Paschall v. Kansas City Star

a. Newspaper vertically integrated and eliminated the downstream distribution market, the court held this was not per se illegal, but rather subject to RoR analysis

8. State Oil Co. v. Khan

a. Did not overrule Maricopa (horizontal max price fixing)

b. Low prices will benefit consumers no matter how it is set, as long as they are above predatory level.

c. Optimum Monopoly Price Theory

ii. Accommodating Efficiencies: Relaxed Rule for Non-Price Restraints

1. Continental T.V. v. GTE Sylvania, Inc.

a. Schwinn Rule: Vertical non-price fixing is per se illegal

b. Sylvania had negligible market share and decided to sell to franchised retailers.

c. Antitrust is more concerned with interbrand than intrabrand restraints of trade.

i. Vertical restraints promote interbrand competition by allowing the manufacturer to achieve certain efficiencies in the distribution of his products.

2. Summary: U.S. v. Visa U.S.A.

a. Governance Duality Rule – diminishes competition

i. When Visa would issue mastercards, and mastercard would issue visa.

b. Impossible for other credit card companies to penetrate the market due to exclusive them or us contracts.

c. The exclusive rules were prohibited.

d. Under the general rule of reason analysis, the pigeonholing of horizontal/vertical distinction may not matter as much.

3. St. Martin v. KFC Corp.

a. There existed a dual distributorship structure, where the manufacturer has both independent franchised distributors and also operates as a distributor itself.

b. Court now resolve the doubt as a vertical arrangement instead of horizontal arrangement due to the treatment of horizontal arrangement is per se.

c. Court held the arrangement of excluding franchisees from distribution towns and operating other franchises in the same shopping center as vertical restraint and subject to RoR.

d. Perhaps we’re decreasing intrabrand competition, but we don’t care about that as much as interbrand competition. Therefore it is RoR.

4. Jury Instructions: Vertical Territorial Allocations

c. Applying the Rules: Per Se vs. Rule of Reason

i. Price Agreements

1. Summary: Monsanto v. Spray-Rite Services Corp.

a. The agreement must tend to exclude the possibility of unilateral action

b. No direct evidence of agreement, merely complaints.

c. They were trying to avoid the free-riding and cream-skimming problem.

d. The minimum prices are in fact meritorious under RoR.

2. Business Electronics v. Sharp Electronics

a. Involved the termination of a price-cutting distributor.

b. Agreements did not obligate the following of the listed retail prices.

c. Also a free-riding issue.

i. Required a lot of pre-sale information

d. Unless you have agreement on actual prices, hard to imagine how this can be implanting a cartel

e. Naked v. Ancillary

i. Ancillary – merely enhancing the value of the K or permit the enjoyment of fruit.

ii. Vertical restraints are not subject to per se treatment unless it specifically relates to prices, a restraint that merely affects the price is subject to RoR analysis.

3. Sportmart, Inc. v. No Fear, Inc.

a. P was able to demonstrate that D had agreements with other retailers to sell their goods at higher prices – it is up to the jury to decide whether it is a resale price maintenance agreement.

b.

ii. Other Restraints

1. O.S.C. Corp. v. Apple Computer, Inc.

a. Defendant sought to prohibit its distributors from selling their product through mail orders.

b. However, Apple conducted independent research before they implemented this policy to indicate that this was pro-competitive.

c. Per se rule does not apply because the restraint doesn’t apply to price

d. RoR analysis finds no liability because plaintiff failed to show any adverse effects to competition.

e. No market power, therefore no way for anticompetitive effect.

2. Murrow Furniture v. Thomasville Furniture Inds.

a. Non-price territorial restriction and therefore subject D did not have significant intrabrand market power to cause anticompetitive effects, and therefore is not violating antitrust law.

b. These were not free-riders in the Monsanto scenario.

c. PI Issue

i. Blackwelder Standard for Injunction

1. probable irreparable harm to the P in the absence of an injunction

a. the likelihood of injury to the D if the injunction is granted

b. the prospective merits of the plaintiff’s case

c. the public interest in the controversy

VII. Tying and Exclusive Dealing

a. Background: Politics of the Clayton Act

i. Application of the Clayton Act

1. tying and exclusive dealing involve Ks allegedly in restraint of trade which, moreover, may also be a means of monopolization. §3 of the Clayton act was passed specifically to address these practices

2. Clayton act is about conditioning – it has to be such that it substantially lessen competition or tend to create a monopoly

b. Tie-In Sales

i. Traditional Cases

1. International Salt v. United States

a. The manufacturer of the patented salt injecting machine made the purchasers of the machine to only purchase salt from them and only use it in their machine.

b. Provision that allowed them to purchase like-grade salt from other places but only if they can’t match the price.

c. Patent give rise to the presumption in the federal courts that it has a monopoly power, but no longer true due to the recent Independent Ink decision.

d. The Court used a “quasi” per se rule of liability to hold that arrangement violated §3. The court focused on the defendant’s market power and on the substantial dollar volume of the business in the tied product as proving anticompetitive effect.

e. Quality control defense will be accepted under certain circumstances, but in this case there were comparable quality of salt as substitutes, and no need for a tie to accomplish this purpose.

f. Mozart Co. v. Mercedes-Benz of N. America, Inc.

i. Quality specification is possible does not mean therefore that he tie-in is not necessary to assure high-quality products.

2. Siegel v. Chicken Delight

a. Franchise was licensed for free, but the franchisor required the franchisee to purchase cooking equipment, food items, and packaging from the franchisor at a supracompetitive price

b. Three requirements for finding liability for tying

i. The tying and tied products are two distinct products

ii. That the defendant has sufficient market power in the tying product market ot restrain trade in the tied product market

iii. The arrangement effects not insubstantial amount of commerce.

3. Note: Source of Market Power under Clayton §3

4. Note: “not Insubstantial” Commerce Under Clayton §3

ii. Recent Tying Cases

1. Jefferson Parish Hospital District No. 2 v. Hyde

a. Per Se status reaffirmed.

i. The court unanimously held that this arrangement did not violate antitrust law

ii. Ties not involving IP are only unlawful if the defendant has significant market power in the tying product

b. The concept of Forcing

i. Forcing – the ability to force a purchaser to do something that he would not in a competitive market.

ii. Forcing – to force the buyer into purchasing a tied product that the buyer either did not want at all, or might have preferred to purchase elsewhere on different terms

iii. No forcing here, because everyone who is getting surgery would want and need anesthesiology.

c. Stevens

i. Refusal to sell two products separately cannot be said to restrain competition

ii. It’s too late to turn away from per se rule for certain tying arrangements.

iii. Every refusal to sell two products separately cannot be said to restrain competition.

d. Demand-centered Test for Two Goods

i. No tying arrangement unless there is sufficient demand for the purchase of anesthesiological services separate from hospital services to identify a distinct product market in which it is efficient to offer anesthesiological services separately from hospital services.

e. RoR tying

f. O’Connor’s Concurring Opinion

i. we should use RoR here consistently because a lot of companies without market power will attempt to tie, and we get a lot of false positives.

ii. Three suggested criteria

1. market power in the tying product

2. substantial threat of the market power in the tied product

3. coherent economic basis for treating the tying and tied product to be distinct.

iii. Two Products Test

1. when the economic advantage of joint packaging are substantial, the package is not really anticompetitive.

g. Shift towards consumer/demand-side effects away from supply-side competition.

2. Town Sound and Custom Tops, Inc. v. Chrysler Motors

a. The court treated the per se test as totally separate from the RoR analysis.

b. P wanted to define the market as Chrysler cars, but the court will not do that because it makes no sense, so when the relevant tying market is defined as all the cars that compete with Chrysler, we lack market power here. So Per Se rule does not apply.

c. No injury to competition.

3. Summary: Eastman Kodak v. Image Technical Svcs.

a. The refusal to sell parts to other repair services made the tying illegal even though there was no market power in the tying product. The court reasons that because there is significant switching costs for consumers, and the policy was implemented after the purchase of the machine or leased, it creates significant harm to consumers. Had this policy been implemented up front, this would’ve not been an issue. Enough to get to a jury.

4. Note: Tying in U.S. v. Microsoft

a. Court refused to apply a per se rule to the tying claims against Microsoft, notably, the court seems to ignore the forcing analysis in Jefferson Parish, and goes straight into a Sylvania-type economic analysis.

b. Court wanted the lower court to analyze this as a RoR case

c. Microsoft had a plausible case that there are advantages to integrating the browser in the operating system, so not two products? The market is too new to figure out what the competitive harm is.

d. D.C. Cir. said that the gov’t had to:

i. MSOFT’s conduct unreasonably restrained competition, which requires an inquiry into the actual effect of the conduct on competition in the tied market.

ii. No chance of gov’t winning on the tying claim.

c. Exclusive Dealing

i. Traditional Approach

1. Standard Oil v. United States

a. Exclusive dealing Ks involving gasoline supplied to independent service stations.

b. Applied the per se rule and held that it was illegal even though it acknowledged all the efficiencies and the only effect of 16% of the market.

ii. Recent Approach

1. Summary: Tampa Electric v. Nashville Coal

a. Substantiality requirement is relative

i. It has to be a substantial share of the relevant market and weigh it against the total volume of the product in the relevant market.

2. Roland Machinery Co. v. Dresser Industries, Inc.

a. Posner basically said that even though the S. Ct. hasn’t said anything, there is a general trend to turn away from the per se standard.

b. Statement of req’d proof

i. A requirement is likely to keep at least one significant competitor of the defendant from doing business in a relevant market.

ii. Must prove the probable effect of the exclusion will be to raise prices above the competitive level, or otherwise injure competition. Must show anticompetitive effect.

3. Parikh v. Franklin Medical Center

a. Three factors relevant to the foreclosure analysis

i. The extent of foreclosure in the relevant market

ii. The duration of exclusivity

iii. Incentive to remain in exclusive status.

b. Consequences of foreclosure

i. The motives for K

ii. The anticompetitive harms and benefits of exclusivity and the availability and feasibility of any less restrictive means.

c. Should evaluate the reasonableness of the agreement at the time the agreement was made.

4. Note: The Elzinga-Hogarty Test

a. LIFO – little in from the outside

b. LOFI – little in from the inside

c. Use it to determine the geographic market by expanding it until 90% remains within the geographic market.

5. Menasha Corp v. News America Marketing In-Store

a. Not per se analysis, but instead RoR analysis.

b. A jury could infer market power from the fact that NAMIS’s price have risen with its share of at-shelf coupons and that NAMIS is consistently able to sell its dispensers.

d. Review Exercises: Motion Practice

i. Drafting an Adequate Complaint

ii. Economic Expert’s Affidavit

VIII. Mergers and Acquisition

a. Classic Merger Cases

i. United States v. Von’s Grocery Co.

1. After merger the market share of the two stores would’ve been 7.5%, and the court ruled against the merger because they believed that we should maintain the tradition of single-store grocery owners.

2. Purpose of the §7

a. Majority rejected the notion of economic efficiency – protecting competitors instead of competition.

b. Majority believed that we should stop anti-competitive behavior at its incipiency.

3. The small grocery stores began to disappear because it is more efficient to distribute via super market.

4. The small guys who now wish to merge can no longer merge because the market is getting to be too concentrated, and they are getting shut out, and will disappear.

ii. FTC v. Proctor & Gamble Co.

1. P&G sought to acquire Clorox the biggest seller of household bleach.

2. Court ruled that the merger would violate §7 for two reasons:

a. The merger would give Clorox a decisive advantage to drive competitors out of the market because P&G can add it on to advertise very cheaply. And raise barrier to entry

b. P&G was the only potential competitor for entry into the bleach market, if merger is allowed, no longer a threat to competition.

3. The majority ignored the possibility of small substitutes, it’s a fungible product, if prices go up, new entrants will come in.

iii. Note: The Potential Competition Doctrines

1. Actual competitor

a. Merger of two current competitors

2. actual potential competitor

a. Firm not yet present in the market, but if the merger is not possible, would have entered and thus increasing the number of competitors.

3. Perceived potential competitor

a. Someone who would never enter de novo. Existing firms think it would and keep themselves at an entry preventing price

b. Industry must already be an oligopoly, supra-competitive prices.

c. Must be scarce – if we eliminate this one firm, then we’ll take the pressure off of current competitors about potential competitors.

iv. Summary: U.S. v. General Dynamics Corp.

1. Looked to true reserves as the true measure of effect on the current market. If everything is tied up with K, nothing to exert downward pressure with.

2. Post-Acquisition Evidence rule

a. The court will not evaluate evidence that since the merger nothing has happened, because we expect you’ll be on your best behavior.

i. Timing matters

b. Will consider evidence of bad stuff happening, just to go to show that it is not pro-competitive.

b. Public Agency Enforcement Policies

i. Modern Enforcement Hypothetical: Merger of Polymer Production and Atlantis Records

1. Failing Company Defense

a. The company is dying, and will soon disappear if it does not merge.

b. Company invoking the defense has the burden of showing:

i. Probability of a business failure

ii. Merging partners have to show that it tried and failed to merge with a company other than the acquiring one

1. a smaller but a less competitive threat.

2. Efficiency Justification

ii. The Merger Guidelines

1. Policy under the 1968 merger guideline.

a. HHI – concentration of the market

2. Flowchart Overview – p. 707

a. Determine Product market

b. Determine Geographic Market

c. Determine market participants

i. Uncommitted entrants - included

1. participate through a supply response

a. supply responses must be likely to occur

i. within one year; and

ii. without the expenditure of significant sunk costs of entry and exit, in response to a small but significant and nontransitory price increase.

ii. Committed entrants – not included

d. Classify market by HHI index

i. Unconcentrated market structure

1. HHI of below 1000

ii. Moderately concentrated market

1. HHI of 1000-1800

a. Increase of less than 100 points – no further inquiry

b. Increase more than 100 points, presumptively bad, unless non-structural factors will excuse

iii. Highly concentrated market

1. HHI of 1800 or higher

a. Safe harbor is 50 points increase or lower

b. More than 50 points – raise real red light, but may still get out based on §2-5

c. If more than 100 points – presumption against merger, but §2-5 may still save you

e. Apply HHI filter test

f. Approvable without further analysis?

i. Yes ( ok

ii. No (

1. nonstructural factors

a. §2 – adverse

b. §3 – Entry

c. §4 – efficiencies

d. §5 – Failing firm

i. merger not likely to create or enhance market power or facilitate its existence if the following cir. met: (1) allegedly failing firm would be unable to meet its financial obligations in the future; (2) it would not be able to recognize successfully under Chapter II of the Bankruptcy Act; (3) it has been unsuccessful good-faith efforts to elicit reasonable alternative offers to acquisition of the asset of the failing firm that would both keep its tangible and intangible assets in the relevant market and pose a less severe danger to competition than does the proposed merger; (4) absent the acquisition, the assets of the failing firm would exit the relevant market.

2. If satisfied ( ok

3. If not ( merger opposed

3. Uncommitted Entrants v. Committed Entrants

a. Whether or not it requires a commitment in a sense of an investment to enter

i. If not a lot of investment to enter – uncommitted entrant

ii. If a lot of sunk costs – committed entrant.

iii. Pre-Merger Notification

1. Note: The Importance of Market Definition

2. Note: Merger Guidelines in Courts

c. Modern Merger Cases

i. Public Enforcement: The FTC and the DOJ

1. Hospital Corp. of America v. Federal Trade Commission

a. Std. of Review

i. Whether it is supported by the substantial evidence on the record as a whole.

b. Whether the challenged acquisition is likely to facilitate collusion.

i. The fewer competitors on the market, the easier it is to collude and succeed.

ii. We worry about potential tacit collusion here even though we don’t care about it if it actually happens. – prima facie evidence of anticompetition

iii. State law made the ease of entry and expansion difficult.

c. Add’l Disposing factors

i. Inelastic demand for product – increase incentive to engage in collusive activity

ii. Past History of Cooperation – tradition of cooperation between hospitals in Chattanooga.

iii. Collusion regarding negotiating posture -

2. Complaint: United States v. Thomson Corp.

a. Allegation of harm

i. Merger would reduce competition in the market where they directly compete.

b. Reduction of others’ ability to compete

c. HHI – no safe harbor applicable.

d. Extreme difficulty of entry.

ii. Anti-Merger Suits by Private Parties

1. Santa Cruz Medical v. Dominical Santa Cruz Hosp.

a. Product market included both inpatient and outpatient services – D’s argument

i. Genuine issue of material fact as to the product market – must go to the jury.

b. Geographic Market –

i. Not just a proximate factor.

c. Price-discrimination and linkage

i. Priced on broadly inclusive categories

d. Cellophane Fallacy

i. DuPont case – patent on cellophane

1. at the time, the substitutes were things that weren’t really close to cellophane.

2. proves nothing that people are going to switch if they raise prices, because they are already charging monopoly prices, and they won’t stop until they reach the point where people would actually switch to inferior products.

d. Joint Ventures

i. Joint Ventures Generally

1. Joint venture is a combination of two or more firms, which remain otherwise independent, agreeing to associate for production or sale of a certain good or service, during a particular time and/or in a particular place

a. An incomplete merger

2. Traditionally, joint ventures are evaluated using merger standards

ii. The Dagher Opinion

1. Dagher v. Saudi Refining Inc.

a. The joint venture became the distributor for both Shell and Texaco, but they maintained separate brands

iii. Petition for Certiorari in Dagher

1. S. Ct. held that the price setting here is not more htan price setting by a single entity, it is not a pricing agreement

2. When the persons who would otherwise be competitors pool their capital and share the risks of loss as well as the opportunities for profit…such joint ventures are regarded as a single firm competing with other sellers in the market

IX. Special Rules of Antitrust

a. Who Can Sue: Standing and Antitrust Injury

i. Illinois Brick v. Illinois

1. alleged violation is price-fixing among producers of concrete blocks.

2. It is forward shifting in that contractors will charge higher prices, etc. to people who purchase buildings

3. back shifting if it is sold to input suppliers, and the building contractors

a. if you reduce demand for laying bricks, and bricks, some people who are suppliers of input would be hurt too.

4. Hanover barred passing on as a defense

a. Indirect purchasers do not have standing to sue for antitrust violations at the manufacturing level.

5. Efficient Enforcer – antitrust law will be more effectively enforced by concentrating the full recovery for the overcharge in the direct purchasers.

ii. Note: Indirect Purchaser Remedies Under State Antitrust Law

1. State Antitrust Law

a. Some differences that are sometimes important between the federal Sherman act and the state Sherman Act passed by the state

i. Such as the ability to bring some predation cases.

b. 37 jurisdictions have developed around the Illinois Brick Opinion

iii. Cargill, Inc. v. Monfort of Colorado, Inc.

1. Private challenge to a proposed merger in which plaintiff sought an injunction rather than damages.

a. Injunctive relief also requires plaintiff to show antitrust injury.

2. The proper plaintiff test – emerges from Brunswick Corp. v. Pueblo Bowl-O-Mat

a. Not only must you show antitrust injury, you also must be the proper plaintiff. P has to be able to apply efficient enforcement.

b. §4 – requires proof of injury by reason of anything forbidden in antitrust law

c. §16 – requires proof of threatened loss or damage by violation of antitrust law.

d. Congress did not intend a result where a P could get an injunction for a claim that he couldn’t get damages for.

3. DOJ Amicus brief wanted a per se rule to prevent competitors standing to challenge acquisitions on the basis of predatory pricing theories because they don’t want rivals of merging parties to obstruct merger because they fear that the merger was efficiency generated.

iv. Summary: Atlantic Richfield v. USA Petroleum

1. injuries resulting from vertical, nonpredatory, maximum price-fixing agreements could constitute antitrust injury for purposes of private suits under §4

2. Here, there is no antitrust injury to a competitor because they are complaining about too much competition rather than two little.

3. must show antitrust injury even if the action is per se illegal for simplicity reasons, because the law is set out to protect consumers and competition and not competitors.

a. If you are a private plaintiff and want injunction or damages, can’t get around proving competitive injury – the presumption of competitive injury does you no good, because you are asking for a remedy unless you can show injury through reason of deduction.

v. Todorov v. DCH Healthcare Authority

1. Conditional extension of Parker to Municipalities

a. The power of sovereign states to suppress competition could be delegated by the state to municipalities, but such a delegation must be express.

b. Hospital is a municipality under state law.

2. Health Care Quality Improvement Act

a. Exemption from antitrust scrutiny for any medical peer review undertaken in the reasonable belief that it would promote health care quality.

3. Copperweld Implication

a. Are outside practitioners who are economic rivals considered employee equivalent or independent entities?

4. Active supervision

a. The Government who implements a policy must also actively monitor it.

b. State Action Immunity: Parker and Its Progeny

i. Parker v. Brown

1. State action enjoys Sherman Act Immunity

2. Scope of immunity

a. Does not empower the legislature to authorize cartels within the commonwealth, one cannot legalize acts that aren’t legal under the Sherman Act.

b. Does not empower a sovereign state to conspire with private parties with the restraint of trade.

ii. Todorov v. DCH Healthcare Authority

1. Dr. Todorov has no standing under §4 and §16 to prosecute the claims of conspiracy of the hospital.

2. Proper enforcer rule restated

a. He’s not the direct purchaser

3. No antitrust injury

a. He would reap some of radiologists’ supracompetitive returns, but if the competition continued, he’d be driven out of the market because he’s not as efficient.

iii. Hertz Corp v. City of New York

1. RoR applied to non-immunity statute

a. Exercise of city’s home-rule authority deemed not to immunize city law that barred rental car firms from imposing certain fees.

b. Not carried out pursuant to a clearly articulated state policy.

2. When a state or local governmental action compels private anticompetitive behavior, state-action immunity would additionally require a showing that the state actively supervised the conduct

c. Petitioning Immunity and Its Implications

i. Eastern Railroad Presidents Conf. v. Noerr Motor Freight Co.

1. The Sherman Act does not prohibit 2 or more persons from associating together in an attempt to persuade the legislature or the executive to take particular action with respect to a law that would produce a restraint or a monopoly.

a. This extends to other branches of the government as well, not just the legislature.

2. Sham Exception

a. Draws a distinction between whether you are getting the effect you want through action/response of the government or in the alternative in the form of the effects of the process on the competitor.

i. Wanting to get anticompetitive result from the process itself and not through the response.

ii. City v. Columbia v. Omni Outdoor Advertising, Inc.

1. No Conspiracy Exception

2. Immunizes them from paying damages, but does not immunize them from liability.

3. Must have specific authority to suppress competition

4. Market Participant Exception

a. Still some language that if you participate in the market, then you are no longer immune.

iii. Professional Red Estate Investors v. Columbia Pictures

1. Litigation can’t be deprived of immunity as a sham unless the litigation is objectively baseless.

d. Jurisdictions

i. Domestic Jurisdiction

1. Summit Health, Ltd. v. Pinhas

a. Do not need much to show federal jurisdiction

b. The jurisdictional element can be established by showing that the challenged conduct directly interfered with the flow of goods in commerce.

c. Effect on commerce test – reaches some decidedly local behavior.

ii. Foreign Jurisdiction

1. Note: the development of extraterritorial antitrust doctrine

a. Sherman Act applies to conduct that restrains trade or commerce among the several states or with foreign nations.

b. Aloca’s effect test – agreements made abroad can violate the Sherman Act if they were intended to affect imports and did affect them.

c. The FTAIA – Sherman act shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless (1) such conduct has a direct, substantial and reasonably foreseeable effect on (A) on [domestic or import commerce], or (b) on export trade or export commerce and (2) such effect gives rise to a claim under the Sherman Act.

d. Assertion of jurisdiction limited by principles of comity

i. Where the law of the defendant’s home country conflicts with the U.S. antitrust laws, courts would balance foreign interest against U.S. interests in deciding whether to exercise jurisdiction.

ii. Act of State Doctrine

1. bars U.S. courts from considering the validity of sovereign acts by foreign governments where such acts occur in the foreign state.

iii. Foreign Sovereign

1. immunizes foreign states from suits challenging the acts of the sovereign

iv. Foreign sovereign compulsion

1. courts generally will not impose antitrust liability where conduct that otherwise would constitute an antitrust violation results from compulsion by a foreign government.

e. Comity Factors

i. Conflict of laws

ii. Nationality or allegiance of parties

iii. Locations of the parties an the locations or principal palces of business of corporation

iv. The extent tow hich enforcement by either state can be expected

v. International enforcement guidelines

f. Hartford Fire Insurance Co. v. California

i. Mere fact that the conduct is lawful in the state where it occurs, and perhaps even encouraged by the government is not enough to permit the court to engage in comity analysis. Invoke the sovereign compulsion analysis.

g. The International Uranium Cartel Revisited

i. No comity analysis until SMJ is satisfied.

2. Subject Matter Jurisdiction

a. F. Hoffman-La Roche LTd. v. Empagran S.A.

b. Filetech S.A.R.L. v. France Telecom

3. The Doctrine of International Comity

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